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European finance leaders sign off on Portugal's €78bn bailout

Portugal will borrow over 7.5 years at an average interest rate of 5.7 per cent – slightly less than the 5.83 per cent we pay.

Green finance minister George Papconstantinou chats with ECB president Jean-Claude Trichet during today's summit in Brussels.
Green finance minister George Papconstantinou chats with ECB president Jean-Claude Trichet during today's summit in Brussels.
Image: Geert Vanden Wijngaert/AP

EUROPEAN FINANCE MINISTER today signed off on €78 billion in rescue loans to Portugal, to give the debt-ridden country time to overhaul its economy.

One-third of the package will be financed by other eurozone states through the European Financial Stability Fund, another third will come from the centrally-funded European Financial Stability Mechanism, and the International Monetary Fund will contribute the final €26 billion, the ministers said in a statement from Brussels.

The statement also said that the Portuguese authorities agreed to “encourage” private investors to maintain their exposure to the country “on a voluntary basis” and not pull out funds.

That was a key demand from Finland, which had a hard time getting approval for the rescue package from its parliament.

European officials could not immediately explain how private investors could maintain their exposure in practice, since the bailout programme was supposed to keep Portugal out of international debt markets for about two years.

It could mean that investors make a commitment to continue buying short-term treasury bills during the bailout period. Greece, for instance, has continued to issue short-term debt over the past year, after being granted €110 billion in rescue loans. For the Greek bailout, large multinational banks were also asked to support their Greek subsidiaries.

Approval from finance ministers was expected, after the Finnish parliament dropped its resistance, and many of the broad details of the programme had already been revealed over the past weeks.

A European official previously said the average maturity of the rescue loans will be 7.5 years — like the bailouts for Ireland and Greece — and come at an interest rate of around 5.7 per cent – slightly lower than the rate Ireland has to pay for its bailout.

The meeting, which continues tomorrow, is likely to spend the remainder of its time concentrating on the ongoing Greek debt crisis, which will push discussion on a reduced interest rate for Ireland off the agenda for the time being.

AP

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